The Supreme Court’s decision in Obergefell v. Hodges has made same-sex marriage the law of the land —finding that state constitution and statutory provisions prohibiting same-sex marriage violate the Due Process and Equal Protection Clauses of the U.S. Constitution.
This decision has in many ways simplified issues for same-sex couples going forward. There are no longer issues of their status not being recognized in certain states or of filing as single filers for state tax purposes and joint filers for federal purposes.
Yet, as can be expected when the legal environment has changed so rapidly, a number of significant issues remain. Some can be addressed through careful planning. Others may require further statutory changes or litigation to be resolved. Tax practitioners should be attuned to these remaining issues to assist their clients in same-sex relationships as the need arises.
RETROACTIVITY
The Obergefell decision is silent on the issue of retroactivity. Yet the finding of a violation of the Constitution combined with past Supreme Court precedent tending to give retroactive effect to their decisions would tend to indicate that the Obergefell decision should be given retroactive effect. The Social Security Administration has decided to give full retroactive effect back to the date of the marriage. The Internal Revenue Service, following the Supreme Court’s earlier decision in Windsor, decided for convenience to give optional retroactive effect only for open tax years, generally going back up to three years.
The possible retroactive application raises the issue of when the marriage took effect. This generally requires looking to state law, but state law can become complicated in this area. Especially in states where civil unions or domestic partnerships were converted to marriages, the statutory language of a particular state must be examined closely to determine when the marriage is considered to have begun. States that recognize common law marriage will also have to deal with the possible application to same-sex couples.
It would certainly be possible to think that a same-sex couple might challenge the service’s limitation of recognition of the marriage only for open years. For purposes of tax returns, many same-sex couples may see little advantage to challenging the limitation, either due to the effort at this point to prepare amended returns or due to the possibility that those amended returns would result in higher taxes.
For other purposes, however, full retroactivity may be more clearly advantageous, at least to one of the same-sex partners. Under a qualified retirement plan, in determining the amount of a qualified joint and survivor annuity, can one go back to the beginning of the marriage or some more recent date? In a community property state, at what point did the couple’s property start to become community property? Under state law, do surviving same-sex partners have claims with respect to titles to property or under homestead protection laws that were denied under previous interpretations that now must be retroactively recognized? These are questions for which we still do not have clear answers at this point.
ESTATE PLANNING
The Windsor case involved a claim to entitlement to the marital deduction under the estate tax by the surviving partner in a same-sex marriage. The favorable treatment of spouses under the estate and gift taxes gives a clear advantage to the recognition of same-sex marriage. Yet a great deal of traditional language in estate planning documents may leave doubt as to what was intended. Use of words such as “wife” or “husband” in wills or trusts may have unclear meaning in same-sex relationships.
Addressing children becomes a special problem for couples in same-sex marriages. At least one partner has no biological relationship to the child. Terms such as “issue” or “descendants” and phrases such as “all children hereinafter born or adopted” may have unclear meaning where there is no biological relationship and a formal adoption has not taken place.
Estate planning documents should be carefully reviewed to include language flexible enough to address same-sex couples and their children
CIVIL UNIONS AND DOMESTIC PARTNERSHIPS
Several states still have civil union and domestic partnership options in addition to the now-required same-sex marriage option. Many of these statutes give the partners in civil unions and domestic partnerships substantially equivalent rights to the rights of couples in same-sex marriages. The Social Security Administration will look to those rights to determine the eligibility for benefits. The IRS, however, does not recognize civil unions and domestic partnerships as the equivalent of a marriage. Partners in civil unions and domestic partnerships must still file as single filers and are not entitled to spousal treatment under the estate and gift tax rules.
While some couples may prefer to maintain civil union or domestic partner relationships, it is not clear that, following Obergefell, states will feel the need to continue those options. These couples may also continue to experience their rights shifting as they move from one state to another. Advisors to civil union and domestic partnership couples will want to make sure that their clients are aware that their rights are not in all circumstances equivalent to a same-sex marriage and are kept apprised of the changing legal landscape.
EMPLOYER BENEFITS
One area in particular where civil union and domestic partner relationships may see changes is with respect to employer benefits. Many major employers adopted domestic partner provisions to help provide benefits to partners of employees where they could not get married or their marriage was not recognized under state law. After Obergefell, many employers may feel little need to maintain domestic partner benefits, since same-sex couples now have the right to marry. If employers drop domestic partner benefits, it may have the effect of pushing same-sex couples into marriage.
We have already mentioned the issue of how far you have to go back to recognize a qualified joint and survivor annuity. Benefit plan documents should be reviewed by employers to ensure that their terms are compliant with Obergefell. In addition to tax-related employer benefits, other areas that should also be reviewed include the Family and Medical Leave Act, bereavement and leave of absence policies, and the Uniform Services Employment and Reemployment Act.
Even after Obergefell, discrimination based on sexual orientation may be permissible in some states. Employers and employees should be aware of their rights and risks under current law.
RELIGIOUS FREEDOM
An area of law that will continue to develop is the conflict between the recognition of same-sex marriage and the rights claimed to religious beliefs that do not recognize same-sex marriage. Similar conflicts are already playing out under the Affordable Care Act requirements to provide contraceptive coverage. The Kentucky county clerk refusing to issue same-sex marriage licenses even after Obergefell is another manifestation of the same conflict that will continue to be litigated in the courts.
SUMMARY
While Obergefell has made same-sex marriage the law of the land and in many ways simplified life for same-sex couples, many issues still remain to be clarified that could require years of legislative and judicial action. Advisors should become aware of these pitfalls in advising same-sex clients and in preparing estate plans.
George G. Jones, JD, LL.M, is managing editor, and Mark A. Luscombe, JD, LL.M, CPA, is principal analyst at Wolters Kluwer Tax & Accounting US.
